Late last week, the Tanzania Govt tabled a draft of major...

Late last week, the Tanzania Govt tabled a draft of major changes to the Tanzanian Mining Act, including potential renegotiation of all stability agreements, a 16% free carried Govt interest and a right for the Govt to acquire up to 50% of mining companies under certain conditions.  As a result, we believe many institutional investors may look to reduce exposure to Tanzania near-term and we see a risk the share price of Magnis will come under pressure.  We downgrade to Sell.

Downgrade to Sell
Magnis had a cash balance of A$1.5m at the end of March. We estimate ~73m options have been exercised since the end of March at A9.533c for proceeds of ~A$7m.  After the spend during the June quarter, we estimate Magnis’s current cash balance at ~A$7m.  With ~550m shares on issue and 19.8m options, this equates to cash backing of ~A1.2c per share.

An Evolving Business Model
Magnis’s business model has evolved considerably over the past ~12 months.  It was originally a graphite miner, but now has plans to become an integrated cathode producer with equity stakes in several  planned gigafactories.  While we remain bullish on the battery thematic, it is difficult to quantify the value of Magnis’s plans given the limited detail provided to date.

Where to from here?
In our view it is very difficult to predict how the situation in Tanzania pans out from here.  While many of the proposed changes remain somewhat unclear, we believe the new legislation represents a marked increase in sovereign risk for Tanzania.  We believe many institutional investors will simply sell holdings and avoid Tanzania-based investments until there is better visibility on the legislative framework.